Industrial Distributor

Demand-Based Pricing for 8,000 SKUs

The Challenge

A technical components distributor with 8,000+ SKUs had pricing chaos:

  • Patchwork of cost-plus, competitor-matching, and forgotten prices
  • Sales team had broad discounting authority → margin erosion
  • 60% of SKUs sold <50 units/year (sparse data)
  • Sales culture resistant to “black box” pricing

The Approach

Developed a hierarchical pricing model that works despite data sparsity:

  • Category-level estimation: Shrink SKU estimates toward category priors
  • Customer segmentation: Price-sensitive vs. relationship accounts
  • WTP signals: Quote-to-order rates, discount request frequency
  • Transparent outputs: Confidence intervals + plain-language explanations

The Outcome

After 12 months:

+8% Avg. margin improvement

-15% Ad-hoc discounting

400+ Underpriced SKUs found

Pricing automated

Key Insight

B2B pricing isn’t about finding the “right” price — it’s about giving sales teams defensible anchors.

A model that explains its reasoning gets adopted. A model that just outputs numbers gets ignored.